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TESARO, Inc. (TSRO - Free Report) incurred a loss of $3.04 per share in the second quarter of 2018, which was wider than the Zacks Consensus Estimate of a loss of $2.66 as well as the year-ago loss of $2.82 per share. However, the adjusted loss (excluding share-based compensation) for the reported quarter was $2.52 per share.

Total revenues, primarily from Zejula, were approximately $57.2 million in the quarter, up 15.1% sequentially. Revenues, however, missed the Zacks Consensus Estimate of $64.49 million. The company had recorded total revenues of $29.5 million in the year-ago quarter.

Shares of the company declined almost 11.9% in after-market trading on Aug 2 as it missed estimates and presumably on lower sales expectation for Zejula in 2018. Moreover, TESARO has underperformed the industry in the past year. While the stock has lost 57.4%, the industry increased 1.3%.

Quarter in Detail

Product revenues during the quarter rose 96.1% year over year to $56.5 million. The significant increase was mainly driven by strong sales of Zejula, which more than doubled from the year-ago period to $53.9 million. Zejula’s sales were up 10.2% sequentially.

Importantly, the company registered more than 6000 new patients on Zejula therapy since its launchl. On its last quarter earnings call, the company had reported that more than 5000 patients were prescribed Zejula since launch. In the second quarter, the drug retains its lead in the U.S. ovarian cancer market in the PARP inhibitor segment.

The company’s other marketed drug, Varubi, generated sales of $2.6 million in the quarter. Subsequent to the quarter, TESARO completed divestment of the U.S. and Canadian rights of the drug to TerSera Therapeutics for $40 million plus potential milestone payments and royalties.

License, collaboration, and other revenues were up 7.1% to $0.7 million.

During the second quarter, research & development expenses increased 36.7% year over year to $97.6 million, primarily due to increased expenses for clinical studies on Zejula, TSR-042 and TSR-022. Selling, general and administrative (SG&A) expenses increased 7% year over year to $100 million, reflecting increased activities to support commercialization of Zejula in the United States as well as Europe.

TESARO ended the quarter with $575.1 million of cash and cash equivalents, up from $499 million on Mar 31, 2017.

Pipeline Update

The company is actively working on expanding the label of Zejula in first-line ovarian cancer as well as in other cancer indications. Zejula is being evaluated in several clinical studies as monotherapy or in combination for additional indications. Janssen, a subsidiary of Johnson & Johnson (JNJ - Free Report) , is developing Zejula in prostate cancer with regulatory applications to be filed next year.

A regulatory application seeking label expansion of Zejula in late-line ovarian cancer beyond BRCA-mutation patients is expected in the fourth quarter of 2018.

Apart from Zejula, TESARO’s pipeline also includes immunotherapies – anti-PD-1 antibody, TSR-042, and anti-LAG-3 antibody, TSR-022. The company is developing TSR-042 in the lucrative first-line non-small cell lung cancer among other indications.

2018 Outlook Down

TESARO lowered its expectation for revenues for 2018 to be in the range $250 to $265 million from $310 to $345 million, reflecting the divestiture of Varubi and pressure on Zejula sales. Expectations for Zejula sales were lowered to the range of $225 to $235 million (previously $255 to $275 million). Sales of the drug in the third quarter are expected to be $58 to $62 million.

The company expects other revenues, including licensing and Varuby oral (in Europe), to be in the range of $25 to $30 million (previously $55 to $70 million).

The cash and cash equivalents is expected to be $400 million at year end.

Our Take

Although Zejula continues to show strong adoption, competition is increasing in the PARP inhibitor segment, which is reflected in Zejula sales outlook. Recent approval of Clovis Oncology’s (CLVS - Free Report) Rubraca in earlier-line setting and expansion in patient population without BRCA mutation makes the ovarian cancer space more competitive. AstraZeneca’s (AZN - Free Report) Lynpraza is the third PARP inhibitor approved for ovarian cancer.

However, successful development of Zejula earlier than Rubraca and Lynparza in first-line ovarian cancer may boost sales of the drug.

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